The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles

74 Pages Posted: 18 Oct 2014 Last revised: 8 Feb 2016

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Ralf R. Meisenzahl

Federal Reserve Board

Rodney Ramcharan

University of Southern California, Marshall School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 17, 2014

Abstract

This paper shows that illiquidity in short-term credit markets during the financial crisis may have sharply curtailed the supply of non-bank consumer credit. Using a new data set linking every car sold in the United States to the credit supplier involved in each transaction, we show that the collapse of the asset-backed commercial paper market decimated the financing capacity of captive leasing companies in the automobile industry. As a result, car sales in counties that traditionally depended on captive-leasing companies declined sharply. Although other lenders increased their supply of credit, the net aggregate effect of illiquidity on car sales is large and negative. We conclude that the decline in auto sales during the financial crisis was caused in part by a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market: the captive leasing arms of auto manufacturing companies. These results also imply that interventions aimed at arresting illiquidity in credit markets and supporting the automobile industry might have helped to contain the real effects of the crisis.

Keywords: liquidity, crises, credit

JEL Classification: G2, E32, E44

Suggested Citation

Benmelech, Efraim and Meisenzahl, Ralf R. and Ramcharan, Rodney, The Real Effects of Liquidity During the Financial Crisis: Evidence from Automobiles (October 17, 2014). Available at SSRN: https://ssrn.com/abstract=2511181 or http://dx.doi.org/10.2139/ssrn.2511181

Efraim Benmelech

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ralf R. Meisenzahl

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Rodney Ramcharan (Contact Author)

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

Register to save articles to
your library

Register

Paper statistics

Downloads
308
Abstract Views
1,657
rank
92,470
PlumX Metrics